Chapter 07 - Chapter 7 (15th ed) - Measuring Domestic...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 7 (15 th ed) - Measuring Domestic Output, National Income, and the Price Level Assessing the Economy's Performance National income accounting measures the economy's performance by measuring the flows of income and expenditures over a period of time. National income accounts serve a similar purpose for the economy, as do income statements for business firms. Consistent definition of terms and measurement techniques allows us to use the national accounts in comparing conditions over time and across countries. The national income accounts provide a basis for of appropriate public policies to improve economic performance. Gross Domestic Product GDP is the monetary measure of the total market value of all final goods and services produced within a country in one year. o Money valuation allows the summing of apples and oranges; money acts as the common denominator. o GDP includes only final products and services; it avoids double or multiple counting, by eliminating any intermediate goods used in production of these final goods or services. o GDP is the value of what has been produced in the economy over the year, not what was actually sold. GDP Excludes Nonproduction Transactions o GDP is designed to measure what is produced or created over the current time period. Existing assets or property that sold or transferred, including used items, are not counted. o Purely financial transactions are excluded. Public transfer payments, like social security or cash welfare benefits. Private transfer payments, like student allowances or alimony payments. The sale of stocks and bonds represent a transfer of existing assets. (However, the brokers' fees are included for services rendered.) o Secondhand sales are excluded, they do not represent current output. Two Ways to Look at GDP: Spending and Income. o What is spent on a product is income to those who helped to produce and sell it. o This is an important identity and the foundation of the national accounting process. Expenditures Approach(See Figure 7.1 and Table 7.3) o GDP is divided into the categories of buyers in the market; household consumers, businesses, government, and foreign buyers. o Personal Consumption Expenditures-(C)-includes durable goods, nondurable goods and services.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
o Gross Private Domestic Investment-(I g ) All final purchases of machinery, equipment, and tools by businesses. All construction (including residential). Changes in business inventory. If total output exceeds current sales, inventories build up. If businesses are able to sell more than they currently
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/18/2011 for the course ECON 101 taught by Professor Mcdounough during the Spring '11 term at DeVry Westminster.

Page1 / 5

Chapter 07 - Chapter 7 (15th ed) - Measuring Domestic...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online